Private label goes upmarket

24 December 2013

SYDNEY: Brands in Australia face a new challenge from private label offerings which are increasingly moving upmarket, a leading industry figure has said.

Kosta Conomos, head of retail at market research firm Nielsen, identified three stages of the private label life cycle. "The first stage, where we stayed for much longer than other markets, was the 'private label is cheap' phase," he told The Australian.

"During this time there was considerable stigma attached to buying store brands and shoppers were aware they were sacrificing quality for a cheap product," he explained.

But over the past five years private label had operated in a 'good value' phase, where they more closely resembled branded counterparts and shoppers could feel they were saving money without sacrificing quality.

Conomos said he now saw the market moving into a third phase, where private label became a distinctive product for retailers. He reported that one quarter (26%) of those shoppers trading up within private label were doing so in order to get "benefits and quality they don't believe they are getting from brands".

"With retailers stocking almost identical line-ups of major brands, it's the house brands that are truly the differentiator between what stores sell, and now with the arrival of premium private-label ranges, this differentiator has become more meaningful," Conomos added.

This theme was taken up by Tjeerd Jegen, head of Woolworths, who argued that "most big brands are not catering for premium products … but there is a growing customer demand for premium products that we are catering for".

Jegen indicated that the supermarket's top-tier Gold range – it has three tiers – had to meet at least two of three criteria – being made from highest-quality ingredients; being sourced authentically; and being handmade or according to a traditional method.

"This is a way to get fantastic Australian products on our shelves in a way that celebrates excellence and showcases innovation," he added.

Rival Coles also operates a three-tier strategy, with Finest as the top range. The chain's research has found a strong increase in demand for gourmet food: 72% of shoppers said the quality of their food was more important to them now than it was five years ago.